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Social distancing: just one more step


I heard from a colleague today that her daughter has been ‘socially distanced’ from her school. No, not a punishment – just a sudden new experience now impacting families around the world.

As schools and workplaces close, and travel is dramatically curtailed, ‘social distancing’ is rapidly impacting human interactions at every level. Coronavirus is challenging the norms of activity and communication.

Accelerating a trend

Yet while extreme, the current crisis is in many ways simply accelerating a trend and may prove a tipping point in the way society operates. As IACCM will reveal in an imminent webinar, some 70% of business-to-business negotiation was already virtual in form even before the on-set of the virus. I’m sure right now it must be 90%+. And already, in 2019, working from home was the norm for more than 35% of IACCM members, at least some of the time.

Our capacity to maintain connections via technology is very evident as we observe the ability of universities and schools to shift rapidly to on-line teaching and as we see video communication from stranded cruise ship passengers. So we are in many ways equipped for this change, except that it’s all rather unstructured. Our processes were not  designed on the assumption that everything is digital and we haven’t been trained to operate with full efficiency in a ‘socially distanced’ world.

Email: a blessing and a curse

To take a simple example, email is used extensively for business communication, including negotiation. While in some ways this represents tremendous efficiency, it actually often leads to barriers and misunderstanding. Unlike a physical meeting, we cannot observe body language or easily test for intent. Yet it isn’t in fact that we can’t do these things – it is that we haven’t been trained to do so (though IACCM is also rapidly addressing that particular gap as well).

A new normal

With the heightened pressure to develop sustainable working practices, plus the immediate need for businesses to cut costs, accelerated social distancing may prove to be the new normal. We need to recognize and adapt to a fast-changing model in human interaction.

The ‘dysfunction tax’ of modern contracting


“For every dollar of revenue that your company brings in, figure out how many cents are being frittered away to cover the cost of dysfunction — the self-inflicted wounds of bad strategy, poor execution, and ineffective communication, among other things, within your organization. The hard part, of course, is knowing how to value the impact.”

This call to action, published recently in Strategy+Business, strongly resonates when it comes to contracting. Not just the agreements themselves, or the time it takes to get them agreed and in place, but the entire life-cycle. IACCM research continues to reveal massive opportunities to reduce the ‘dysfunction tax’ and at times like this, with markets in disarray, action that rapidly cuts costs and improves cash flow is clearly urgent.

1. Align commercial practices and contracts with corporate strategy and goals. The IACCM capability assessment and benchmark provides a quick and low cost method to review process performance and create alignment.

2. Streamline contract review and production. Once it’s clear what portfolio of agreements is needed to support strategy, it’s time to develop the overall set of terms and clauses that will populate those agreements, either as templates or within a more flexible clause library.

3. Implement a scoring model. Just having the right agreements or templates doesn’t help if people don’t know when to use them. Implement a tool like the IACCM VCU Framework to support selection of the optimum contract and risk model for the transaction or project being undertaken.

4. Simplify contracts. The dividend that comes from contract simplification is remarkable. Improved design and wording cut cycle times and costs, as well as supporting improved levels of compliance and performance.

These four steps create the basis for a coherent, aligned approach to contracting. Depending on the nature of the agreements that form your portfolio, it’s then necessary to develop appropriate governance and performance mechanisms – the mix of people and systems needed to ensure value delivery. Again, this is indicated by a sophisticated planning tool, such as the VCU Framework mentioned above.

The Capability Assessment is the place to start since it is rapid to complete, it offers a thorough gap analysis and identifies the overall improvements required as well as immediate ‘next steps’.

And what is that tax – or the opportunity for tax reduction? Research shows that it’s typically between 5% and 15% of the revenue or spend under contract. Surely a dysfunction that’s worth fixing.

Coronavirus: Top Ten Affected Industries


News headlines, stock market fluctuations, photos of empty supermarket shelves … should we be panicking, or has there been over-reaction?

It is clear that coronavirus is causing major disruption and it seems likely to become worse. But in terms of actual impact on industry, how severe have things actually become? The stories of supply chain disruption make it sound as though major problems are already occurring and, for some, that appears to be true. However, it is also the case that impacts are not equal. Some businesses are affected far more than others. Last week, IACCM gathered data from 500 of its member organizations to discover to what extent they are experiencing disrupted performance to their contracts, both from suppliers and to customers.

Overall, only about 7% report a severe impact and some 30% a moderate impact – so at this point it is significant, but not catastrophic. Based on the IACCM data, the position varies substantially between industries. The input covered 25 industries. Here are the top ten based on extent of disruption:

  1. Automotive
  2. Technology (Hardware)
  3. Transportation / Logistics
  4. Oil & Gas
  5. Health Care
  6. Schools, Education & Training
  7. Aerospace / Defense
  8. Engineering & Construction
  9. Chemicals
  10. Technology (Software / Services)

It should be noted that several key industries, such as consumer goods, retail and travel / tourism, were not covered by  the survey. Also, this study looked at disruption as it relates to contracts, so does not reflect other forms of impact.

Full survey results, together with discussion of other impacts, were contained in an IACCM webinar (Coronavirus: What Should We Be Doing Now?) that was delivered on March 6th and is available in the IACCM Resource Library.

 

Contract performance and supply chains: coronavirus impact


The last few weeks have seen a lot written about the impacts of coronavirus on supply chains. The fear of supply shortages and consequent disruption to production underlies many of the predictions of a global economic slowdown. How worried should we be?

A black swan?

Among the opinion leaders, a few have challenged whether the latest health emergency represents a ‘black swan’ event or, in the words of one, is it ‘a lame duck’? They argue that industry learnt from past crises and made extensive investments in developing supply chain resilience. This, they say, will limit the impact.

Are they right? IACCM conducts regular research among its members and has gathered extensive data that helps us better understand current events. First, a report released in February shows that insight to the ultimate sources of supply remains highly variable and in most cases quite limited. These findings suggest that many organizations simply don’t know the precise scale or nature of potential shortages and many are scrambling to find out.

A second study, conducted over the last few days and with results due this week, shows that the impact to date is actually quite limited. While there is again variability by industry, very few are at this stage indicating severe shortages, though many are taking or exploring defensive actions. In part, these are driven by the recognition that their insight to extended supply chains is currently too restricted and that this represents an unacceptable level of risk.

The situation could of course become far worse and not necessarily due to production issues. For example, one industry reporting above average impact is transport and logistics.

So what’s the truth?

The massive sell-off in global stock markets appears to be more driven by uncertainty than by hard data. It may also be that coronavirus is Simply the trigger for a more fundamental reassessment of current trading patterns and relationships. The IACCM survey results suggest that a significant proportion of businesses are evaluating their current supply sources and considering future alternatives. The risk off-sets and core economics of the last 25 years may have changed. Hence the real impact of coronavirus could be a fundamental refocusing and realignment of supply chains.

So what should we do?

The results of IACCM research and their implications for contracts and trading relationships will be discussed in a webinar on Friday March 6th and subsequently in a series of virtual roundtables. Visit www.iaccm.com/events for details and to register.

 

Contracts, Law & Society: The IACCM Symposiums for 2020


Last year’s IACCM Academic Symposiums were sell-out events – and this year promises to be no different! There is broad consensus that contract and commercial management are critical competencies for managing and making sense of today’s turbulent markets, so driving and disseminating relevant research is of tremendous importance to business and society more generally.

Fundamental issues such as sustainability and social value are rising up the agenda, and must be reconciled with the continuing need for business to generate profit and deliver innovation. These demand the cross-disciplinary perspectives and integration offered by the IACCM Symposiums. These unique events bring together a fascinating array of academics with senior practitioners from business and government. Their highly interactive format enables sharing of the latest research, together with stimulating debate that generates a whole new set of ideas for future investigation.

What can participants expect this year?

Our sessions will address important questions, such as:‘

What is the role of contracts, contracting, and the commercial community in delivering balance between the needs of organizations and the needs of society?

How will contracts evolve to meet these needs and what obstacles must be overcome?

What role is Artificial Intelligence playing in both operational delivery and analytics of contracts?

The 2020 Agenda

This year, we are partnering with three top universities and issuing our call for papers to both academics and practitioners with the umbrella theme of ‘Contract & Commercial Management: A Force for Disruption & Change’. Our schedule is:

University of Leeds (UK) – June 23rd

NorthWestern University School of Law (Chicago, US) – October 1st

Queensland University of Technology Business School (Brisbane, Australia) – November 12th

Interested in contributing?

To discover more and view our initial ‘Call for Papers’, please visit this link. To register your interest or to discuss presenting / submitting a paper (whether as an academic or a practitioner), please contact either Tim Cummins (tcummins@iaccm.com) or Nevena Jevremovic (njevremovic@iaccm.com).

The global economy, coronavirus and Heathrow


The decision by the UK Appeal Court to block development of a third runway at London Heathrow may at first sight have little to do with coronavirus. But in fact, are we starting to see a convergence of forces that will fundamentally reshape social values and the global economy?

Much is being written about the extent to which the Heathrow decision undermines Britain’s claims to being at the forefront of the global economy. But in fact, the reverse may very well be true. Does the UK actually need this expansion and, if so, does it need to be at Heathrow?

Fundamental questions

As coronavirus proves, ’the environment’ is about much more than our physical surroundings. This, together with the growing urgency of reducing climate change, potentially represent ground breaking shifts in public opinion and behavior. Among them will be a review of existing supply chains and a questioning of the need for so much travel.

One possible consequence is that capacity increases at Heathrow will quite simply be unnecessary and the Appeal Court may have saved the UK from major disruption and expense. But even if extra capacity is needed, the push for economic regeneration outside London suggests Heathrow is the last place it should be built. What about Birmingham, to take advantage of the investment in high speed rail? In fact, anywhere but the already congested and transport constrained South East of England.

Events sometimes move fast and in unexpected directions. They offer opportunities to step back and think in fundamentally different ways. It may be that we are at this juncture right now – and it points to the need for critical reassessment of major commercial decisions and the core framework of today’s patterns and methods of trade.

The pernicious effect of compliance


These days, organizations invest heavily in compliance. It’s important, but done the wrong way can have disastrous results.

Compliance is a big deal, especially for many of those who work in commercial roles. Ensuring and monitoring adherence to rules and standards is a major part of their job and they perceive it to be of tremendous value.

Can others be trusted?

It is easy for this focus on protecting business interests to turn into a belief that others, even within our own organization, are less concerned or diligent. We have all heard the stories about those mavericks in Sales or the program managers who agree changes without proper approvals. Over time, it is common for skepticism to turn to mistrust – an assumption that our colleagues will behave irresponsibly unless they are carefully controlled and monitored.

An example of this mentality is frequently evident in the handling of contracts, where changes of any sort are subject to onerous review and approval. Ultimately, this may send the message ‘Not only don’t we trust you, but we don’t even think you are competent’.

Enable or control?

A recent article in Strategy+Business highlights the negative effect of such a message. It undermines collaboration; it is demotivating; it stifles new ideas and transparency. The best organizations are those that care about compliance, but assume their employees can be trusted and make every effort to equip them with the knowledge or tools that they need to be compliant. They also ensure strong feedback loops so that the rules and standards can be challenged, reviewed and updated.

So how do you approach compliance: are you a controller who assumes the worst in others, or an enabler who facilitates the right business decisions?